I ran into one of our landlords last week, who owns quite a
few properties in Chichester and we got talking about the recent changes in
taxation for landlords and how this was going to affect him. There have been
lots of reports about this and a lot of landlords are worrying about how this
is going to impact their investment, so I thought I would have a look into it
and outline some of the facts.
So, let us start by looking at what is going to be changing.
The first change is stamp duty. Currently you pay no stamp duty on the first
£125,000. You then pay 2% between £125,000 - £250,000, 5% between £250,000 -
£925,000, 10% above £925,000 up to £1.5m and then 12% above £1.5m. The proposed
changes mean that as of April 2016, if a landlord buys a property for
buy-to-let, their stamp duty bill will face a 3% surcharge.
In 2017, Landlords’ tax relief is going to be affected as
they will no longer be able to deduct mortgage interest from their rental
income before it is assessed for tax, but will instead get a flat rate of 20%
tax credit. This means that those paying a higher tax rate will lose half of
their relief, while some others will be moved into this bracket and will likely
see their tax bill soar.
Landlords are also facing a change to the way they pay tax
when they sell their buy-to-let properties. At present, capital gains isn’t due
until the end of the tax year, but from April 2019 landlords will have to pay
their capital gains bill within 30 days of selling the property.
A lot of landlords have asked, why have these changes been
made? The reports say that it is a way of trying to slow down buy-to-let
landlords snapping up affordable property, freeing them up for first time
buyers. The Council of Mortgage Lenders revealed in November 2015 that the
number of buy-to-let mortgages granted had increased by 36% in the previous 12
months, whereas mortgages granted to first time buyers was up by just 10%.
So what does this mean for the future of buy-to-let? I
believe that we will see a few landlords initially sell up that can’t be
bothered with the hassle of it all, but after the initial huffing and puffing,
it will all settle down. With the stamp duty changes, landlords will end up
factoring this in to their initial investment and end up hanging on to the
property for a little bit longer to re-coop some more rental income and in turn
maximise their capital growth when it comes to selling.
Some banks have accounts whereby they are giving cashback on
their direct debits and/or on “balances between” which may help with the
finances, might be worth investigating this with your bank to see if it is an
option.
In summary, whilst these changes will impact how buy-to-let
works for landlords and for those with properties currently let out, there is
an element of recalculating and re-jigging finances. For new landlords it will
become ‘the norm’ and will be something that potential landlords will factor
into their investment when doing their calculations. The best bet is to have a
chat with a Financial Advisor as they will be able to point you in the right
direction when it comes to tax.
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